Repairs/Improvements made in 2020, but paid in 2021

Tax, SDIRAs & Cost Segregation
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Repairs/Improvements made in 2020, but paid in 2021

Brendan Carlson
Investor · Chicago, IL · Member since 2020 · 14 posts · 3 votes

For one of my rental properties, I had a contractor do 2 repairs (small roof repair, replaced four windows) and 4 improvements (added support beams in crawlspace, added gutters and downspouts, added basement access door, added soffit).

The work was completed in December 2020. However, I paid in January 2021 via check.

Would I expense & capitalize these repairs & improvements on my 2020 taxes or 2021 taxes?

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    Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
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    @Brendan Carlson

    If you are a cash-basis taxpayer(like most individuals are), the deduction is available in 2021.

    The only exception is if you meant you paid by credit card in 2020 and paid the credit card off in 2021(I doubt you meant this) but in this situation, the deduction would be in 2020.

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    • Ashish AcharyaBusiness Member
      CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
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      Originally posted by @Brendan Carlson:

      For one of my rental properties, I had a contractor do 2 repairs (small roof repair, replaced four windows) and 4 improvements (added support beams in crawlspace, added gutters and downspouts, added basement access door, added soffit).

      The work was completed in December 2020. However, I paid in January 2021 via check.

      Would I expense & capitalize these repairs & improvements on my 2020 taxes or 2021 taxes?

         As you are a cash basis tax payer,  the expense will follow the year when it was paid. 

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      1. Eamonn McElroy
        Accountant · Atlanta, GA · Member since 2015 · 1k+ posts · 1k+ votes
        5y

        So --

        Repairs are expenses that deducted based upon your business' method of accounting.  They are deducted when paid (if cash method) or when incurred (if accrual).

        Improvements are a little different.  With improvements, we generally start depreciating when the unit of property is placed into service.  However -- the caveat is that we must have basis in the unit of property to depreciate.

        If this was a regular trade payable, in which the contractor finished up improvements in December and sent you an invoice net 15 or net 30, and you paid in January, you likely don't have basis in the improvements.

        However -- let's say the contractor needs draws or needs the work paid for in December.  You execute a 30 note with a third party and the third party pays the contractor.  You pay off the note in January.  You likely have basis.

        There is nuance here and I didn't touch on everything.  It's complicated, and isn't an area that lends itself well to DIYing.  If you have further questions you should run them by a competent tax advisor.

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      2. Michael PlaksPro Member
        Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
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        @Brendan Carlson

        2021

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      3. Basit SiddiqiBusiness Member
        Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
        5y

        @Brendan Carlson

        If you are a cash-basis taxpayer(like most individuals are), the deduction is available in 2021.

        The only exception is if you meant you paid by credit card in 2020 and paid the credit card off in 2021(I doubt you meant this) but in this situation, the deduction would be in 2020.

        [email protected]917-280-8544
        Basit Siddiqi CPA4.979 Reviews
        View Page
        1Reply
      4. Brendan Carlson
        OP
        Investor · Chicago, IL · Member since 2020 · 14 posts · 3 votes
        5y

        @Ashish Acharya @Eamonn McElroy @Michael Plaks @Basit Siddiqi Thanks all! Really appreciate the help.

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